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Introspect Exuberance Over FATF's Report on India
- Published on 07 December 2024
Reform FATF's Mechanism Against Money Laundering
(Edited Image of FATF's 2024 Report on India)
The global anti-money laundering body, Financial Action Task Force (FATF’s) latest report on India has got a lot of positive reportage. Named Mutual Evaluation Report of India (MERI), it marks a substantial improvement over FATF’s previous MERI published in 2010. Released on 19th September 2024, the Report requires guarded welcome as it is silent on certain key issues.
The silence is deafening on 2016 demonetization, which actually turned out to be an institutionalized driver of money laundering (ML). Same is the case with the electoral bonds (EBs), which too institutionalized ML.
The Report has also not banked on ML concerns flagged by Comptroller and Auditor General (CAG) in its reports. MERI has also not touched on big spurt in ML resulting from botched implementation of Goods and Services Tax (GST). It has also not delved into misuse of statutory corporate social responsibility (CSR) funds for ML & nexus between CSR-Trusts controlled or aligned with politically exposed persons (PEPs).
Some of issues would be elaborated later in this column to drive home the need for FATF to reform. Time has come to enlarge FATF’s 40 recommendations on AML and countering the financing of terrorism (CFT).
FATF, an inter-governmental entity, should consider incorporating 41st recommendation, specifying ML risks and safeguards for big-bang tax reforms such as GST. The risk of tax frauds and other crimes is very high during the transition period till new taxation system gets stabilized.
Its 42nd recommendation should deal with foreseeing risks & planning AML safeguards before unleashing tectonic moves such as demonetisation. This disruptive move is undertaken ostensibly to target black money that awaited laundering.
Longest,‘Glide Path’ for ‘Nimble’ Fiscal Policy Deepens Uncertainty
- Published on 13 August 2024
Unveil Inter-Generational Equity Policy as part of fiscal reforms
“The fiscal consolidation path announced by me in 2021 has served our economy very well, and we aim to reach a deficit below 4.5 per cent next year. The Government is committed to staying the course. From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the Central Government debt will be on a declining path as percentage of GDP.”
With this impressive self-certification, Finance Minister Nirmala Sitharaman concluded Part A of her 2024-25 budget speech on 23rd July2024. The certification is backed with eye-popping claims tucked away in one of the budget documents titled ‘Statements of Fiscal Policy’ (SFP).
The document comprises two statements that were earlier presented as separate documents. These are: 1) Macro-Economic Framework Statement (MEFS) and 2) Medium Term Fiscal Policy (MTFS) cum Fiscal Policy Strategy Statement (FPSS).
One would have to struggle to close popped-up eyes after reading all claims in latest & previous SFPs, four-times amended Fiscal Responsibility and Budget Management (FRBM) Act, 2003 and many times more-altered FRBM rules.
One should weigh official claims against recommendations on fiscal discipline & accountability made by successive Finance Commissions, IMF’s country reports on India, Finance Ministry-appointed expert committees’ reports & independent studies from Asian Development Bank and institutions such as Indian Management Institutes.
I miss a 'Strong Opposition', says the PM - Here's an Eight-point Agenda for the Opposition
- Published on 22 June 2024
(Image Courtesy: PIB)
“Ask the most difficult and sharpest questions.” This is the gauntlet Mr. Prime Minister Narendra Modi threw down at the Opposition on 19th July 2021 in his traditional comments to the media before the start of monsoon session.
Mr. Modi added: “Also allow the government to respond in a disciplined environment.” He believed: “This will give a boost to the democracy, strengthen people’s trust and improve the pace of development.”
Couple this quote with Mr. Modi’s forgotten wisdom that is vital for Amrit Kaal: “Governance depends on the ability to communicate and understand human psychology...Those, who are in power, are soon surrounded by sycophants and rumour mongers and soon we get cut off from reality. We are encased in a golden cage and isolated and fed with filtered information. Thus, we may be led to take wrong decisions. Learning to ask right questions to the right person will end all this,” stated Mr. Modi on 5th June 2010. He was delivering Keynote address at the “Suraj Sankalp” National Convention.
These two quotes should constitute the perfect ignition for healthy clash of titans (ruling NDA versus INDIA block) in the newly constituted 18th Lok Sabha and eternal Rajya Sabha over the next five years. Such quotes should inspire the Opposition to draw up its agenda in advance before each session of Parliament to focus on alarming governance deficit.
The very idea of mooting public agenda for the Opposition might appear off-beat. Most people expect journalists & analysts to pen agenda for the new Government. No Government in India, however, cares for such unsolicited ideas. However, Mr. Modi would certainly spare few seconds to read this column as it is a sincere attempt to ease his sorrow over feeble Opposition he encountered over the last decade.
Inheritance Tax row - A golden opportunity to end 32-years long Policy Paralysis on DTC
- Published on 07 May 2024
Bharatiya Janata Party (BJP’s) fusillade against inheritance tax (IHT) has four underlying messages. First the obvious one: electoral rallies are the best platform to take the public for a ride with emotions-fueled rhetoric.
Second and most important message is: IHT has created a silver lining for direct tax code (DTC) to get traction in raging electoral campaign. This is because DTC & IHT/wealth tax are connected.
DTC is indeed a glittering instance of policy paralysis that six regimes failed to end since 1992. The Congress party, fighting on the back foot with back to the wall, has failed to capitalize on this issue. Lapsed DTC Bill, 2010 provided for taxation of wealth of rich and super-rich including their overseas assets.
The wealth can be taxed during the life of rich persons as wealth tax, a concept that got booster shot during the Covid pandemic. The second way to tax wealth is to impose estate duty on real estate after the demise of its rich owner. The third way to tax wealth is IHT that covers all net assets including equity shares & jewellery left by a deceased person.
The Gift tax serves as a tool to prevent evasion of both IHT and Wealth tax, apart from being anti-money laundering mechanism. All these taxes help capture income which often gets avoided or evaded.
The third message is that 2024 elections have downgraded the national exchequer, the ultimate Kamdhenu, as a muddy football for politics. Exchequer should instead be worshipped as Lakshmi and its revenue streams discussed responsibly at public platforms.
All leaders should introspect over the long-term adverse impact of casual approach towards tax & non-tax revenue. It is the key to our collective survival & growth. Doubting Thomases can read the World Bank’s report captioned ‘Sri Lanka Development Update -Mobilizing Tax Revenue for a Brighter Future’ October 2023.